Intellectual property theft has posed perhaps the greatest single threat to the copyright industries since the 1990s. In the mid-1980s, pirating software and entertainment media on a large enough scale to make a profit demanded a large initial investment and a huge time commitment. Pirating movies, for instance, required large banks of VCRs along with hundreds of blank tapes. Copies of the movie were typically of much lower quality than the original, and national copyright laws made storing, selling, and distributing the bulky tapes very difficult. As a result, most pirated copies of movies, music, games or software were copied and distributed overseas in countries where copyright law was nonexistent or not enforced. Technological advances in the 1990s put an end to many of the hassles faced by intellectual property thieves. The Internet, along with powerful computers and the conversion of nearly every type of media into digital form, made copying and distributing intellectual property very easy even in the United States. Once a thief found a way around the copyright protection that existed on the copyrighted material, the computer provided an easy way to store the material. Since digital media do not degrade when copied, the thief could produce perfect duplicates. FTP file sites and peer-to-peer networks allowed for easy distribution of the media over the Internet to any country in the world.
The Justice Department report revealed that in 2002, intellectual property theft worldwide cost American companies $250 billion. The Motion Picture Association of America (MPAA) estimated that the movie industry lost
FIGURE 4.7
$3.5 billion in 2004. The Recording Industry Association of America (RIAA) reported losses in the music industry of roughly $4.2 billion per year in 2004. The MPAA estimated that during each month of 2003, 2.6 billion songs, movies, and software programs were distributed illegally over the Internet, representing a 25% increase in the theft of intellectual property since 1997.
TABLE 4.9
| Computer crime incidents, outside and inside perpetrators, 1999–2004 | |||||
| 280 respondents | |||||
| SOURCE: Lawrence Gordon, Martin Loeb, William Lucyshyn, and Robert Richardson, "Figure 12. How many incidents? From outside? From inside?" in 2004 CSI/FBI Computer Crime and Security Survey, Computer Security Institute, 2004, http://i.cmpnet.com/gocsi/db_area/pdfs/fbi/FBI2004.pdf (accessed November 19, 2004) | |||||
| HOW MANY INCIDENTS BY PERCENTAGE? | |||||
| 1–5 | 6–10 | >10 | Don't know | ||
| 2004 | 47% | 20% | 12% | 22% | |
| 2003 | 38% | 20% | 16% | 26% | |
| 2002 | 42% | 20% | 15% | 23% | |
| 2001 | 33% | 24% | 11% | 31% | |
| 2000 | 33% | 23% | 13% | 31% | |
| 1999 | 34% | 22% | 14% | 29% | |
| HOW MANY INCIDENTS FROM THE OUTSIDE? | |||||
| 1–5 | 6–10 | >10 | Don't know | ||
| 2004 | 52% | 9% | 9% | 30% | |
| 2003 | 46% | 10% | 13% | 31% | |
| 2002 | 49% | 14% | 9% | 27% | |
| 2001 | 41% | 14% | 7% | 39% | |
| 2000 | 39% | 11% | 8% | 42% | |
| 1999 | 43% | 8% | 9% | 39% | |
| HOW MANY INCIDENTS FROM THE INSIDE? | |||||
| 1–5 | 6–10 | >10 | Don't know | ||
| 2004 | 52% | 6% | 8% | 34% | |
| 2003 | 45% | 11% | 12% | 33% | |
| 2002 | 42% | 13% | 9% | 35% | |
| 2001 | 40% | 12% | 7% | 41% | |
| 2000 | 38% | 16% | 9% | 37% | |
| 1999 | 37% | 16% | 12% | 35% | |
Creative Industries Fight Copyright Violators
One of the biggest threats to music industry profitability has been peer-to-peer networks. In the late 1990s, peer-to-peer networks were created that connected music lovers around the world. Napster was the largest of these with tens of millions of users at its peak. Napster, like all peer-to-peer networks, did not contain any music on its own Web site. Instead, Napster tracked the songs and albums its members had on their individual computers. By logging into the central server of the network owned by Napster, members could first locate what music files were available on the network and then proceed to download the music from another member's computer. From the industry point of view, the problem with peer-to-peer networks was that once an album made it on to the network, millions of people suddenly had access to it for free.
Less than a year after the Web site opened, the RIAA filed a case against Napster in Federal District Court on December 6, 1999. The RIAA represented most major recording labels and claimed the software maker infringed on these labels' copyrights. The court sided with RIAA. Napster appealed the ruling and in the end settled with RIAA and paid them $26 million for copyright infringement. Before the case was settled, Napster creator Shawn
FIGURE 4.8
Fanning sold Napster to Bertelsmann, a huge German media conglomerate. Bertelsmann dismantled the file-sharing network and constructed a database of songs that could be downloaded for a fee, part of which goes to pay the record company royalties.
The court's ruling against the practice of open music file sharing meant that the RIAA and other organizations could continue to sue peer-to-peer networks that allowed the sharing of copyrighted material for free. While the RIAA was suing Napster, however, a new problem arose. Networks began to pop up that did not have a clearly defined center of operations. The Kazaa and Gnutella networks, for instance, had no central server to let members know who on the network had which songs. Instead, each member of the network installed a program that allowed him or her to see the individual music libraries of others on the network. According to the RIAA, music sales dropped from $40 billion to $26 billion between 2000 and 2002 even after the original Napster was shut down. In late 2003 RIAA began to go after individual file swappers. According to "Sharp Decline in Music File Swapping" (January 5, 2004) a press release from marketing research firm comScore Networks of Reston, Virginia, the RIAA filed 382 lawsuits in 2003 against individual illegal music file swappers, most of whom quickly settled their cases for between $2,500 to $10,000. Since then illegal down-loading of music over the Internet has dropped. At the same time, more and more people have turned to down-loading music from legitimate Internet music services, such as iTunes and MusicMatch. Nevertheless, on January 27, 2005, the RIAA announced 717 new law suits against individual file-swappers.
Inspired by the music industry's success, the Motion Picture Association of America also took steps to prevent piracy. Usually, the most damaging instances of piracy in the motion picture business occur when bootleggers digitally record a movie in a theater as they watch the film. The bootlegger then transfers the movie via the Internet to a buyer, who then offers the movie up on the Internet or makes copies on a DVD and sells them in a foreign country. According to Barry Fox in "It's Curtains for Video Pirates" (New Scientist, August 14, 2004), the Warner cinema chain began handing out night vision goggles to some employees in California to look for these bootleggers during premiers. In 2004 the MPAA began working with high-tech engineering firm Cinea in Reston, Virginia, to develop imaging techniques that would prevent digital camcorders from recordings movies in theaters. One technique involved altering the frame rate in movies so that the film would move out of sync with most digital camcorder's refresh rate, resulting in a copy of the movie that shudders when played. Finally, in November 2004 the MPAA announced that they too would be prosecuting individuals who used peer-to-peer networks to view movies.
Justice Department Begins to Crack Down
In the past most litigation over copyright law has been conducted in civil courts where individual citizens and organizations sue one another. If the defendant is found guilty, such as in the RIAA v. Napster case, then the defendant typically has to pay money to the plaintiff. In a criminal case, the defendant serves jail or probationary time if found guilty. The U.S. Department of Justice is in charge of prosecuting criminal cases against people and organizations that violate national copyright laws. The Justice Department also has specialized units based in cities where high-tech theft is common. These units are known as the Computer Hacking and Intellectual Property (CHIPS) units, and they identify and help prosecute intellectual property suspects. Figure 4.9 reveals that the Justice Department investigated a relatively small number of criminal intellectual property cases between 1994 and 2002. Most of these investigations involved international copyright crime organizations or individuals who made tens of thousands of dollars stealing intellectual property. For instance, in July 2004 a man was sentenced to a year in prison and fined over $120,000 for selling 11,000 illegal video and audio recordings of live music acts such as Kiss and Bob Dylan. Two months later in September 2004 the Justice Department seized over $56 million in counterfeit Microsoft software and charged eleven people with manufacturing counterfeit software and counterfeit packaging.
Responding to the new threats in intellectual property crime, U.S. Attorney General John Ashcroft created the Department of Justice's Task Force on Intellectual Property in March 2004. The task force was assigned to examine the entire range of intellectual property theft from counterfeit automotive parts to the theft of trade secrets to copyright infractions in the entertainment industry. In October 2004 the task force came out with its recommendations on how to address the rise in intellectual property theft. The report recommended that five more specialized CHIPS units be placed in areas rife with intellectual property theft and that more FBI agents be put on intellectual property theft cases. The task force also believed that more aggressive measures should be taken against crime organizations and individuals who infringe on copyrights. More specifically, the report recommended that Congress pass an act making it illegal for people to post copyrighted material they do not own on the Internet.
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